However, Mr Hirst said wholesale funding had become cheaper in recent months, as world markets stabilise and he expects the big four banks to strike more of a balance between funds from deposits and wholesale markets as a result.

"I would expect that, as long as there's continued strength in those wholesale funding markets, I would think there will be some abatement of the pricing around retail deposits," he said.

Competition for deposits has also been cited by banks as a major reason for not cutting mortgage rates in line with the central bank's cash rate.

Bendigo's net interest margin, a measure of its profits on loans, increased by 9 basis points over the six months to December, reflecting lower funding costs.

The results sent the bank's shares 3.25 per cent higher to $10.17 around the close of trade.

Mr Hirst was still cautious about the second half of the financial year, due to uncertainty in financial markets.

"Clearly, we think there is going to be continued low credit growth," he told analysts.

"Especially around things like consumer lending and credit cards, people are looking to clean up their personal balance sheets.

"That is going to be a challenge for us, but one I think we can meet through our expanding network and value proposition."

A fully franked interim dividend of 30 cents per share will be paid to investors, consistent with the same period in the previous year.